EU

The conflict at the heart of Germany’s energy policy is finally coming to a head. Can Germany claim to be an environmental leader while continuing to burn more coal than any other developed country apart from the US?

The issue is easier to describe than to resolve. Germany has led the EU in adopting “green” policies, including the promotion and subsidy of renewables. Energy consumers, including industry, have tolerated ever-rising energy costs. Electricity in Germany costs over 90 per cent more than in the US. The country has begun the process of closing its nuclear power stations — the last will be closed in 2022, although a vexed question remains over how the decommissioning will be paid for. Energy policy enjoys support across the political spectrum. The Green party won just 7.3 per cent of the vote in the last federal election but green ideas permeate the thinking of all the other parties. The grand coalition between the Christian Democrats and the Social Democrats is committed to reducing emissions by 40 per cent by 2020, 70 per cent by 2040 and 80 to 95 per cent by 2050. The whole plan is explained in a post by Mat Hope on the CarbonBrief website. The German approach is now being exported to Brussels with a determined effort under the new European Commission to shape an EU energy policy along the same lines. Read more

The election is over and against all expectations we have a clear result. When it comes to energy policy, however, the agenda will be set not by what the Conservative party has promised in its manifesto but by external events. A number of looming issues are already obvious and the government will have no control over most of them.

The first is the further postponement of the plans for nuclear development starting at Hinkley Point in Somerset. Two new reactors capable of supplying some 7 per cent of total UK electricity demand are planned. The first was originally supposed to be on stream in time to cook Christmas dinner in 2017. But despite the prospect of a lavish price — index linked for 35 years regardless of what happens to global energy prices – and £10bn of even more generous financial guarantees, funding for the investment required is not in place. The reluctance of investors to commit will not be helped by the technical problems in the reactor vessels, which are now under investigation by the French nuclear regulator. This problem has widespread implications for the companies involved (Areva and EDF) and for nuclear development in many countries across the world, starting with France itself. Read more

An intriguing process has begun in the EU, almost unnoticed outside the small world of Brussels and the shrinking circle of those who believe in an ever-closer European Union. The EU is asserting its role in the energy market. The policy was nodded through at the March meeting of the European Council on the basis of a paper published at the end of February by the new European commissioner for the energy union — Maros Sefcovic, one of the vice-presidents of the EU and also one of the most effective players in a Commission that is already showing itself to be stronger and more determined than its last three predecessors.

The February document was a good piece of work. It is careful and meticulous in the best European tradition. There are no grand statements of ambition. No country is forced to give up the power to set its own energy mix. The French will not be told to start fracking for shale gas or the extensive volumes of tight oil that exist in the Paris basin. Germany will not be required to change its policy of phasing out nuclear power. There is no proposal to unify taxation on energy production or consumption. The idea floated by Commission president Donald Tusk to establish a common buyer for imported natural gas in order to strengthen the trading power of the EU was not endorsed.

What changes is simply but crucially that a new level of policy making is established above the nation states. Read more

The deal announced on Friday between Russia, Ukraine and the EU looks to have removed the immediate risk of gas supplies to Ukraine being cut off over the winter. The EU and the IMF will underpin Ukrainian purchases with payment in advance. It is not clear from what has been published so far whether this deal will now become the norm for the future. As it stands for this year at least, the deal is mutually beneficial. The Russians, who need the money, will get paid. The Europeans, who have no wish for an open conflict, are able to buy their way out of trouble at least for the moment. But this is not the end of the story. While the short-term issue of energy supplies may have been resolved, the question of Ukraine’s longer term status has not. Read more

The dispute over Ukraine has moved into a diplomatic phase and for the moment at least the prospect of a Russian advance into eastern Ukraine has receded. The consequences of what happened in the Crimea, however, continue to shape European policy making. The invasion provided a sharp reminder of Europe’s reliance on Russian gas – a degree of dependence which the EU will now reduce even if a settlement is agreed by the diplomats. It is quite possible that within two or three years European gas imports from Russia could be halved. Russia would be reduced to being one supplier among many in a world where gas-to-gas competition inexorably reduces prices. Read more

The collapse of the European emissions system over the last few weeks is a serious indicator of the loss of interest in the issue of climate change among the top policy makers, especially in Germany. Unless the market can find a new credibility the whole structure of the European climate agenda looks vulnerable. Read more

Could the conflict between Gazprom and the European Union become the antitrust case of the decade?

The answer is yes and the argument is spelt out in an excellent paper just published by the Centre for European Policy Studies.

The case could not only make legal history and provide a very timely reminder that the EU is alive and kicking, it could also transform the international gas market, pushing on the fall in prices already underway and undermining to the point of extinction the linkage between the prices of crude oil and natural gas. Read more

Nick Butler

on energy and power

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About Nick

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This blog looks at the relationship between energy and power, plus the global trends and influences on the industry. Nick aims to blog twice a week

Nick Butler is Visiting Professor and Chair of the Kings Policy Institute at Kings College London.

He spent 29 years with BP, including five years as Group Vice President for Policy and Strategy Development at BP from 2002 to 2006. He has also served as Senior Policy Adviser at No 10, Chairman of the Centre for European Reform and Treasurer of the Fabian Society.

Nick Butler is an investor in, and an adviser to a number of companies and institutions in the energy business. The views expressed are solely those of Mr Butler. This material is not intended to provide and should not be relied upon for investment advice or recommendations. Readers are urged to seek professional advice before making any investment.